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EU Probes Telefonica Deal

By

Alessandro Torello

Updated Jan. 25, 2011 8:45 a.m. ET

BRUSSELS—The European Union's top antitrust authority has begun investigating an agreement between Spanish telecommunications company
Telefonica SA
TEF -0.70%
and Portuguese peer
Portugal Telecom
SGPS SA to ascertain whether they have broken competition rules, it said Monday.

The European Commission probe is centered on whether the two companies breached EU rules by agreeing not to compete with each other in their respective home markets as part of a deal under the terms of which
Telefonica
TEF -0.70%
last year acquired control of Brazilian mobile telephone company
Vivo Participacoes SA,
formerly a joint venture with Portugal Telecom.

According to a deal-related document dated in June, the parties had to "refrain from engaging or investing, directly or indirectly through any affiliate, in any project in the telecommunication business ... that can be deemed to be in competition with the other within the Iberian market" until at least Dec. 31, 2011.

The takeover itself isn't under investigation, the commission said. A Telefonica spokesman declined to comment. Representatives for Portugal Telecom weren't immediately available to comment.

A representative for Portugal Telecom said the company was notified by the European Commission of the probe and is "available to clarify all the facts."

"The existence of many strategic partnerships [with Telefonica] has never stopped the two companies from carrying normal activities, and competing, in markets where they are present," the representative added.

The probe will also focus on cooperation before the Vivo deal, the commission said. In 1997, Telefonica and Portugal Telecom had made an agreement to cooperate outside of the EU and the commission now wants to find out whether that deal also included some non-compete element for the EU, mainly Spain and Portugal.

Telefonica and Portugal Telecom said last July they had agreed for PT to sell its stake in Vivo to Telefonica for €7.5 billion ($10.21 billion).

EU Probes Telefonica Deal

BRUSSELS—The European Union's top antitrust authority has begun investigating an agreement between Spanish telecommunications company Telefonica SA and Portuguese peer Portugal Telecom SGPS SA to ascertain whether they have broken competition rules, it said Monday.